|
|
|
|
|
|
|||
|
DerivActiv Provides Topic 820 ServicesDerivActiv is a leading provider of non-performance adjusted valuations on derivatives and other financial instruments for Topic 820 compliance.Issued by the Financial Accounting Standards Board (FASB), Fair Value Measurements and Disclosures (Topic 820), formerly FAS 157, has updated the definition of fair value, clarified methods to be used to measure fair value, and expanded disclosures about fair value measurements to be used in financial statements. Topic 820 was issued in an attempt to provide guidelines that will increase transparency, comparability, and consistency of fair value measurements in financial statements. DerivActiv assists all types of entities with meeting Topic 820 requirements. Our team will classify assets and liabilities based on the fair value hierarchy; they will apply accepted valuation techniques to measure fair value, and they will determine non-performance risk. We work closely auditing firms to verify that assets/liabilities are classified correctly and to confirm that our methodology is consistent with the current practice for similar entities. DerivActiv has an auditor approved process to determine fair value and prepare financial statements according to Topic 820. To learn more about how DerivActiv professionals can help your organization with Topic 820 compliance, call 866-200-9012. Contact us to request a free demonstration. Topic 820 OverviewTopic 820, formerly FAS 157, creates a new standard definition of “fair value,” provides a methodology for determining the fair value of assets and liabilities (including derivatives and hedging products) by using a hierarchy of inputs (Level 1, Level 2, Level 3), requires using valuation techniques consistent with conventional approaches (market, income, and/or cost), and clarifies the need to include certain assumptions about risk, market illiquidity, and nonperformance risk in measuring fair value. To speak to a Topic 820 expert, call at 1-866-200-9012. Definition of Fair Value: At its center, Topic 820 standardizes the definition of fair value to mean the exit price of a transaction not the entry price. Specifically, “Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." Fair Value Hierarchy: In an effort to ensure that fair value measurements are market based or based upon assumptions that market participants would actually use when pricing an asset or liability, Topic 820 establishes a three level fair value hierarchy. In this hierarchy, Topic 820 requires that the use of observable inputs for pricing is maximized and the use of unobservable inputs for pricing is minimized when determining fair value.
Disclosure Requirements: Disclosure requirements under Topic 820 vary depending upon how a security is classified under the fair value hierarchy. Securities classified as Level 1 require the least amount of disclosure, while disclosure requirements for securities classified as Level 3 were actually expanded under Topic 820. Under Topic 820, the impact of earnings on Level 3 investments must be disclosed and changes in Level 3 investments must be reconciled between periods. Valuation Techniques: Topic 820 promotes using valuation techniques consistent with conventional approaches to measure fair value. Market Approach: The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An example of the market approach is matrix pricing. Income Approach: The income approach uses valuation techniques to convert future cash flows to a single present amount using discounting. Values are measured by using current market expectations about future amounts. Examples of income approach are interest rate swaps and option valuations. Cost Approach: The cost approach is based on the amount that would be required to replace the service capacity of an asset in today’s market. The price that would be received for the asset is based on the cost to acquire or construct a substitute asset. The preparer of a financial statement is allowed to use a combination of techniques to value assets and liabilities. If you are interested in learning more about Topic 820 (formerly FAS 157), you can download a Topic 820 white paper here. Additional Clarifications: Topic 820 clarifies that if market participants would use an assumption about risk in pricing the relevant security, then the fair value measurement should include assumptions about risk. If market participants would use an assumption about lack of liquidity in the market when pricing the relevant security, then the fair value measurement should include assumptions for restrictions in the sale or use of a security. Topic 820 clarifies that nonperformance risk, such as the impact of an entity’s credit standing or any posted collateral, should be taken into consideration in the fair value measurement.Topic 820 ImplementationTopic 820 was issued by FASB on September 15, 2006. It was effective for fiscal years beginning after November 15, 2007. In December 2009, Topic 820 was amended. Final amendments to Topic 820 will be effective for annual or interim reporting periods starting after December 15, 2009, except for Level 3 activity for sales, purchases, issuances, and settlements on a gross basis, which will be effective for reporting periods beginning after December 15, 2010. Amendments to Topic 820 can be found on the FASB website: www.fasb.org. As an independent portfolio risk management and hedge accounting service, DerivActiv is uniquely positioned to help your organization meet Topic 820 requirements related to financial assets and liabilities. DerivActiv has a proven process, approved by auditors, for determining fair value as defined by Topic 820 and we provide quarterly and annual valuation reports to many of our clients.Topic 820 PodcastIn addition you can listen to an audio podcast where MuniMarket Pulse interviews Brett Schwantes, a CPA with Wipfli on the subject of FAS 157 and how its application on financial statements for public, private, and non-profit entities. He covers the key points of Topic 820, the higher perceived volatility, and the implications of using the exit price for fair value. Listen here to learn more about Topic 820, formerly FAS 157. LISTEN TO MUNIMARKET PULSE™ DerivActiv, LLC serves as the host for podcasts produced by MuniMarket Pulse. MuniMarket Pulse is a podcast that covers wide-ranging subjects in the municipal market in an effort to keep listeners informed of changes and events. Tune in each week to hear exclusive interviews with prominent municipal finance professionals. To learn more about Topic 820 and its salient points, MuniMarket Pulse has produced an audio podcast interview with Brett Schwantes, a Certified Public Accountant with Wipfli, on the subject. Listen Here.If you are interested in learning more about Topic 820 (formerly FAS 157), you can download a Topic 820 white paper here. |
|
Topic 820 Amendments Topic 820 Application Topic 820 Definition of Fair Value Topic 820 Derivatives Topic 820 Disclosure Topic 820 Disclosure Example Topic 820 Disclosure Requirements Topic 820 Guidance Topic 820 Implementation Topic 820 Mark to Market Topic 820 Level 1 Topic 820 Private Equity Topic 820 Valuation Services |
|
|
|
|
|
Copyright © 2009 DerivActiv, LLC. All Rights Reserved
|